The Atlanta economy continued the momentum of healthy job growth. The Atlanta metropolitan area (metro Atlanta) has added 97,500 non-farm jobs since the first quarter of 2016. Even though Atlanta experienced overall employment gains, the unemployment rate ticked up to 5.2 percent from 5.1 percent a year ago. The rise in unemployment can be attributed to more Atlanta residents looking for work and not finding jobs immediately. In terms of the office-using sectors, employment grew 4.7 percent year-over-year, and continues to boost demand for office space throughout metro Atlanta.
The Atlanta office market has experienced continued positive momentum to start 2017. Overall average asking rental rates reached a new record in the first quarter of 2017 at $23.51 per square foot (psf), an increase from $23.39 psf last quarter. The Class B market experienced the largest rent growth from $18.61 psf last quarter to $19.02 psf. Overall average asking rental rates in Buckhead are the highest in the city at $32.19, with a vacancy rate of 12.2 percent.
The Atlanta overall vacancy rate in the first quarter of 2017 slightly increased to 16 percent from 15.8 percent in the fourth quarter of 2016. Two large suburban move-outs totaling nearly 400,000 square feet led to 105,000 square feet of negative net absorption for the overall Atlanta market. This marks Atlanta’s first quarter of negative net absorption since 2011, ending the streak of 21 consecutive quarters of positive net absorption. Despite Atlanta’s suburban market experiencing negative net absorption, the CBD market posted over 260,000 square feet of positive occupancy gains with Downtown leading the way with 117,000 square feet of positive net absorption.
Leasing activity has remained strong throughout Atlanta with 2.25 million square feet of leases signed in the first quarter of 2017. The Northwest/Cumberland/Galleria submarket led the market with 394,000 square feet of leases signed, followed by the Central Perimeter submarket with 360,000 square feet of leases signed.
Under construction activity in Atlanta is heating up with 4.4 million square feet of office product under construction. This is the largest amount since the start of 2008 when there was 4.9 million square feet of space underway. Coda Tech Square in Midtown is the largest speculative office project under construction at 760,000 square feet, followed by the 500,000-square-foot Three Alliance in Buckhead, which is expected to be completed during the second quarter of 2017.
Big block space in the Atlanta office market during 2016 was relatively scarce. In 2017, we expect the market to get some relief as over 2 million square feet of newly constructed speculative office space is expected to deliver. These developments include the 500,000-square-foot Three Alliance Center, the 355,000-square-foot 4004 Perimeter Summit, and the 300,000-square-foot Riverwood 200. Even though the new deliveries will give the Atlanta market more options, companies such as Global Payments, CBRE, Microsoft, Delta Community Union, and Synovus Bank have already pre-leased a significant portion of the expected new space.
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